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June 29, 2016

Congress Jumps on Bandwagon to Reduce Biologic Drug Exclusivity Term

Ever since the Biologics Price Competition and Innovation Act (BPCIA) was passed along with the rest of the healthcare law commonly called "Obamacare" in 2010, the Obama Administration has included in every budget a proposal to reduce the exclusivity term for biologic drugs from 12 years to 7 years (see "President's Latest Budget Proposal Seeks Decrease of Data Exclusivity Period and Elimination of Pay-for-Delay Agreements"). Last Thursday, Representative Jan Schakowsky (D-IL 9th) introduced a bill (H.R. 5573, the "Price Relief, Innovation, and Competition for Essential Drugs Act"; the "PRICED Act") to do just that, joined by Reps. Elijah Cummings (D-MD 7th), Rosa DeLauro (D-CT 3rd), Lloyd Doggett (D-TX 35th), Marcy Kaptur (D-OH 9th), Jim McDermott (D-WA-7th), and Peter Welch (D-VT); Senator Sherrod Brown (D-OH) and John McCain (R-AZ) are co-sponsors of an identical companion bill in the Senate (S. 3094). Their motivation is simple: the Government Accounting Office released a report last October finding that the Federal government had spent more than $4.4 billion on newly approved biologic drugs through its Medicare Part B program in 2013. The text of the bill reads in its entirety as follows:

To amend the Public Health Service Act to shorten the exclusivity period for brand name biological products from 12 to 7 years.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1.SHORT TITLE.

This Act may be cited as the "Price Relief, Innovation, and Competition for Essential Drugs Act" or the "PRICED Act".

SEC. 2. EXCLUSIVITY PERIOD FOR BRAND NAME BIOLOGICAL PRODUCTS.

(a) In General.—Section 351(k)(7)(A) of the Public Health Service Act (42 U.S.C. 262(k)(7)(A)) is amended by striking "12 years" and inserting "7 years".

(b) Conforming Changes.—Paragraphs (2)(A) and (3)(A) of section 351(m) of the Public Health Service Act (42 U.S.C. 262(m)) is amended by striking "12 years" each place it appears and inserting "7 years".

(c) Applicability.—This Act and the amendments made by this Act apply only with respect to a biological product for which the reference product (as such term is used in section 351 of the Public Health Service Act (42 U.S.C. 262)) is licensed under subsection (a) of such section on or after the date of enactment of this Act.

Subpart (c) is important, of course, to forestall claims that enactment of the bill would constitute a taking requiring recompense, which of course could wipe out (at least in the short term) any savings the government might garner by imposing this change.

The bill was referred to the Committee on Energy and Commerce in the House and Sen. Brown's companion bill was referred to the Senate Committee on Health, Education, Labor, and Pensions.

Despite the logic of the members' motivations, it is curious that the issue has arisen now (or perhaps lobbyist for the biosimilar industry are just being forward thinking), because most if not all of the biologic drugs that are current targets for biosimilar competition have long since lost their regulatory exclusivity. This change in the law will do little to nothing to affect biosimilar availability for many years. And yet the drumbeat has been pounding from before the BPCIA was passed (see "Snatching Defeat from the Jaws of Victory?").

The Biotechnology Innovation Organization (BIO) not unexpectedly is opposed to the bill, saying in a statement by federal government relations Senior Vice President Jeanne Haggerty that the change in the law "would disrupt the careful balance, created by Congress with broad, bipartisan support [in the BPCIA] between the need to encourage investment in innovative, groundbreaking biological therapies and the desire to ensure that patients have increased choices offered by biosimilar products after a reasonable period of exclusivity for the innovator product." And Ms. Haggerty noted that the bill would trade short-term price reductions for the risk of inhibiting investment in these drugs, which typically have high development and regulatory compliance costs.

In our economic system there is always a balance between the amount of risk an investment carries and the size and likelihood of the return on investment. The only peer-reviewed study of this question for biologic drugs recommended (at the time the exclusivity provisions were being debated) that about 17 years was the necessary exclusivity term (see "Professor Grabowski's Economic Analysis of Data Exclusivity for Follow-on Biologic Drugs"). The 12-year term represents a compromise between a variety of proposals, including the 7 year term the Obama administration is so enamored with and the Federal Trade Commission's proposal that there be no exclusivity term (reminding us that things could be much worse) (see "No One Seems Happy with Follow-on Biologics According to the FTC").

It is unlikely that this bill will move to passage in the 114th Congress, in view of the limited time left in the session, the impending Congressional and Presidential elections, and the general failure of Congress to pass legislation over the past few years. But it is likely in equal measure that this bill will be back in the 115th Congress and whether it passes or not will depend on the outcome of these elections. Vote accordingly.

It took more than 25years for the Congress to pass a biologics equivalent of Hatch Waxman, and took a lot of input from the various stake holders to get the BCPIA passed (as part of Obamacare). The 12 year term was an important feature to compensate for the heightened regulatory barriers and lack of patent based protection.

6 years later, many of the same people who passed the BCPIA (I checked their votes) are now seeking to deliberately reverse a key feature of the law. This seems destined to generate bad faith with industry.